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The GMI (see post 4/26) remains at +5 and the QQQQ uptrend is in its 16th (U-16) day. There were 131 new 52 week highs (in my universe of close to 4,000 stocks) and only 14 new lows on Friday. The successful 10 day new high index was quite low, at 16. Nevertheless, most (16/26) of the stocks that hit new highs 10 days ago did close higher Friday than they closed 10 days earlier. While there were 21 successful new 10 day lows, they constituted a minority of the 117 stocks that hit new lows 10 days earlier. Thus, betting on new highs 10 days ago tended to be more profitable, even though there were not many……………………….
I am still amazed by the pundits who are remaining skeptical about this rally, including Alan Abelson, the author of Barron’s Up & Down Wall Street column. As I wrote on Thursday, this has been a good tradeable rally and if you somehow missed it or are still resisting it, you may want to re-examine your methods and your psychology. Why do so many people need a reason for the market to rally. If there are good reasons, they almost always come out after the move. If the train or rocket is moving, why should we fixate on an explanation–just jump on board. I guess I am an orthodox agnostic when it comes to believing in a rationale for stock movements. Meanwhile, the IBD Mutual Fund Index is rising nicely above its 50 day average, signifying that growth oriented funds are rising–so someone is buying growth stocks…………………………………………….
I told you I started buying GOOG after it gapped up around 221 in the last week in April. GOOG closed near its all time high on Friday at 266, up +24.39 for the week. I am starting to become worried that too many pundits are recommending GOOG–it even became the number one stock in IBD’s 100 list in Tuesday’s edition. While I have told you that I disavow all stock scenarios, let me suggest one. I would not be surprised to see GOOG close around 300 by the end of June. The end of the quarter brings that famous "window dressing" period when mutual fund managers are rumored to load up on the current quarter’s winners so that they can look smart when they publish their quarterly reports listing their holdings. (If this misleading practice really happens–and John Bogle told me a few years ago that it does not, why doesn’t the SEC require that all funds list the date and price of all stocks purchased in the reporting quarter?) Anyway, since GOOG was initially offered to the public in a dutch auction and most mutual funds could not load up at the initial offering price, maybe there will be a stampede in June by the fund managers trying to accumulate the high flying GOOG? Hence my hunch that $300 per share may be attainable in June………………………..
I talked to you last post, about Peter Lynch’s strategy of finding possible winners by scouting the shopping malls. It occurred to me that there is a store I often visit that seems to offer the best combination of service and prices in men’s clothing. I like their stores much better than the department stores and their prices are more reasonable. It just so happens that their stock, MW, has popped up on some of my market scans. Mens Warehouse meets my criteria of a launched rocket. The company gapped up on large volume after it announced its earnings on May 18 and declared a 3 for 2 split. MW is also rated A+ by the IBD stock checkup. So, MW is a winner. The question is where to buy it. It clearly is extended, far above its moving average. If I were to take a chance on MW now, I would buy a few shares on Tuesday and place an immediate sell stop below the last mini reaction low of 49.40, perhaps at 49.20 or 48.95. If I got stopped out, I would buy it again if it bounces near its 50 day average. (This is not a recommendation but only for illustrative purposes.)
My rocket scan picked up several other promising stocks, all rated A+ by IBD: FORD, PTC, LCAV, FTO, QSII, HANS. Check them out. (I own one of these.) If the rally continues, I may bet on more of these rockets……………………
I’ve been thinking about my comment on fabricated fantasies on 5/24. I wrote, "What if Darvas is right? All of these people and institutions who are paid millions of dollars for their financial advice are simply involved in a world of fabricated fantasy." The more I thought about it the more I thought I was unduly critical of the fundamental approach. In a sense, we are all looking for the criteria for picking winning stocks, we just employ different criteria. The technician uses mainly price and volume patterns, while the fundamental analyst uses estimated value and economic statistics. This is what I have realized since my post: both strategies fit well within Darvas’ concept of the market as a big casino. We are all using our tools to predict other persons’ buying our stock from us at a higher level. Both groups are playing the same gambling game he described!
By the way, fundamental analysts sometimes ridicule technicians’ search for "momentum" stocks. Correct me if I am wrong, momentum means movement, and we all want a stock that will move up quickly after we buy it. What’s so wrong with momentum? Stagnation is deadly and costly in life and in stocks…………………………………………
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Please remember that the stock market is a risky place, especially now. I am not providing recommendations for you to follow. My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs. While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog. Please consult with your financial adviser and a mental health practitioner before you enter the stock market, and please do not take unaffordable risks in the current market environment. See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.